"Enbridge had another strong year in 2007," said Patrick D. Daniel, President & Chief Executive Officer of Enbridge Inc. "Adjusted operating earnings topped $636 million or $1.79 per share. This result is within our previously stated earnings per share guidance range and reflects solid operating performance in all of our core businesses despite the impact of a weaker U.S. dollar.
"While 2007 was a successful year on many fronts, we were saddened by two tragic accidents which claimed the lives of a customer in Toronto, Ontario and two Enbridge employees based in Superior, Wisconsin. Enbridge continues to work closely with regulatory authorities to investigate the causes of the incidents."
Commenting on the Company's project execution, Mr. Daniel said, "During 2007, we completed a number of smaller pipeline projects and significantly advanced construction and regulatory activities on our major projects. In 2008, we will see a number of more significant projects come into service. These projects will enhance our position as an essential link between the oil sands resource in Canada and crude oil demand in the United States.
"We are particularly pleased with progress made on our Texas Access joint venture with ExxonMobil Pipeline Company which we anticipate will bring Canadian oil sands sourced crude oil to the Texas Gulf Coast in 2011. This project will enable Canadian producers and Gulf Coast refiners to share a heavy crude price differential between Alberta and the Gulf Coast which averaged over $10 per barrel in the last quarter of 2007, net of the expected pipeline transportation cost. That is $1.5 billion per year at 400,000 barrels per day alone. The Texas Access joint venture can deliver this benefit to our customers much sooner than any other alternative by taking advantage of our existing mainline system for two-thirds of the distance, and ExxonMobil's multi-line right-of-way for the other third.
"We are also pleased to be leading a CO2 sequestration initiative. Projects like this one hold promise to offset the environmental impacts of oil sands production which is essential to the energy future of Canada and the United States.
"We look forward to the next four years as a time of exciting transformation for the Company when all of our commercially secured projects are expected to come into service, adding significantly to cash flows and earnings. Based on our outlook, we expect adjusted operating earnings to be in the range of $1.80 to $1.90 per common share for 2008, before accelerating rapidly in the three following years for an average annual growth rate over the four year period of approximately 10%. This visible and robust outlook provides confidence in increasing our dividend, for the thirteenth consecutive year.
"Our 2008 capital expenditures budget approximates $3.7 billion, which compares with 2007 capital expenditures of $2.3 billion," Mr. Daniel concluded. "Complementing our ready access to capital markets, and potential asset monetization plans, we have increased our credit facilities to approximately $6.6 billion to ensure ample financial resources for our growth program."
Earnings applicable to common shareholders were $248.6 million, or $0.70 per share, for the three months ended December 31, 2007, compared with $171.1 million, or $0.50 per share, for the three months ended December 31, 2006. Significant factors that increased earnings included strong fourth quarter results from Enbridge System and Enbridge Gas Distribution (EGD) as well as favorable legislated Canadian tax changes enacted in the fourth quarter of 2007.
Earnings applicable to common shareholders were $700.2 million for the year ended December 31, 2007, or $1.97 per share, compared with $615.4 million, or $1.81 per share, in 2006. Significant factors that increased earnings included colder than normal weather and strong performance at EGD, lower corporate interest expense, dilution gains at Enbridge Energy Partners (EEP) and favorable tax changes. See Consolidated Earnings for continued discussion of financial results.
On February 5, 2008, the Board of Directors declared quarterly dividends of $0.33 per common share, reflecting a 7.3% dividend increase. The Board of Directors also declared quarterly dividends of $0.34375 per Series A Preferred Share. Both dividends are payable on March 1, 2008 to shareholders of record on February 15, 2008. Effective with the March 1, 2008 dividend, participants in Enbridge's Dividend Reinvestment and Share Purchase Plan receive a 2% discount on the purchase of common shares with reinvested dividends.
The Company's Management's Discussion and Analysis will include detailed project information and will be available by February 22, 2008. The following summary is provided in the interim.
During 2007, Enbridge made significant progress in commercial and construction activities on many of its projects. Approximately $12 billion of liquids pipelines projects are commercially secured, including the U.S. portions of Southern Access Expansion and Alberta Clipper, which are being undertaken by EEP.
Projects Completed During 2007
Several projects were completed during the year and either started contributing to earnings near the end of 2007 or are expected to contribute to earnings early in 2008.
Surmont and Long Lake Oil Sands Projects
- The Surmont Oil Sands Project, which consists of pipeline and tank facilities at the Cheecham Terminal on the Athabasca Pipeline, was completed and placed into service in 2007.
- The Long Lake Oil Sands Project, which includes pipeline and tank facilities required by the Long Lake Project as well as lateral pipelines and tank facilities at the Cheecham terminal on the Athabasca Pipeline, was completed in the first half of 2007. It is expected that shipments will commence in early 2008.
- Enbridge has 25-year agreements for pipeline transportation services, with respect to both projects, on the Athabasca System.
- The Company is collecting stand-by fees on the Long Lake Project and earnings from both projects are included in Athabasca System earnings.
- Construction of the $0.1 billion Athabasca Pipeline expansion projects, which include additional pumping stations at Elk Point and Cheecham as well as modifications to existing pumping stations, was completed during the first half of 2007.
- The Elk Point expansion is in-service.
- The Cheecham expansion will go into service with first production from the Long Lake Project.
Neptune Offshore Pipelines
- Except for final subsea connections to be completed prior to production startup in 2008, the Neptune offshore oil and natural gas pipelines were completed during the last half of 2007.
- The Company started collecting stand-by fees in the fourth quarter of 2007 and production volumes are expected to commence in early 2008.
Vector Pipeline Expansion
- The construction of two additional compressor stations was completed and put into service in the fourth quarter of 2007, expanding the pipeline's capacity from 1 billion cubic feet per day (bcf/d) to 1.2 bcf/d.
Commercially Secured Projects Under Construction
- Construction activities advanced significantly during 2007 on the Waupisoo Pipeline, which will provide 350,000 barrels per day (bpd) of crude oil capacity from the Cheecham Terminal on the Athabasca Pipeline to the Edmonton, Alberta area.
- Approximately 67% of the pipeline has been installed and the project remains on schedule for completion in mid-2008 at a cost of $0.6 billion.
Southern Access Mainline Expansion Project
- The Southern Access Expansion, under construction in Canada and the U.S., will add 400,000 bpd of capacity to the Enbridge System.
- The Canadian portion is being undertaken by Enbridge at an estimated cost of $0.3 billion and the U.S. portion is being undertaken by EEP at an estimated cost of US$2.1 billion.
- In Canada, phase 2 construction activities are currently underway and involve upgrades at 18 pump stations to improve pumping effectiveness.
- In the United States, construction activities are nearing completion on the 321-mile (517-kilometer) section from Superior to Delavan, Wisconsin with over 94% of welding completed. This phase of the expansion is expected to be in service by the second quarter of 2008 and add approximately 190,000 bpd of capacity.
- The full expansion will be completed in 2009.
- The 180,000 bpd, 20-inch diameter Southern Lights pipeline will transport diluent from Chicago to Edmonton.
- Long-term commitments were obtained from shippers in 2006.
- During the first quarter of 2007, Enbridge filed for regulatory approval of the Canadian portion of the Southern Lights pipeline with the National Energy Board (NEB).
- Regulatory hearings have been completed in Canada and are ongoing in the United States.
- Construction activities are nearing completion on the 321-mile (517-kilometer) section from Superior to Delavan, Wisconsin with over 95% of welding completed.
- Assuming required approvals are received, the diluent line is expected to be in service in late 2010 at an estimated cost of US$2.2 billion (including allowance for funds used during construction (AFUDC)).
Hardisty Contract Terminal
- The $0.4 billion crude oil terminal at Hardisty will have term tankage capacity of 7.5 million barrels, is fully contracted and will be completed in phases from late 2008 through 2009.
- Construction of the 19 tank pads was completed at the end of September 2007 and tankage construction is underway, with 30% complete at year-end.
- Once complete, the Hardisty Terminal will be one of the largest crude oil terminals in North America.
- BA Energy Inc. is building a bitumen upgrader near Fort Saskatchewan, Alberta for which Enbridge has agreed to provide pipeline and terminaling services.
- Enbridge expects to invest approximately $0.1 billion in new facilities to provide tankage services at a new satellite terminal to be developed adjacent to the upgrader as well as pipeline transportation for the upgrader's output from the new terminal to a refinery hub near Edmonton.
- Construction is approximately 50% complete on the six tanks and ancillary facilities that comprise the Enbridge terminal facilities being constructed for BA Energy.
- BA Energy has recently delayed the in-service date of their upgrader until the second quarter of 2009. As a result, Enbridge has slowed construction progress until the in-service date of the upgrader is clear and to further secure coverage of Enbridge's costs.
Ontario Wind Project
- The $0.5 billion Ontario Wind Project is designed to generate approximately 182 megawatts of wind power in the Municipality of Kincardine on the eastern shore of Lake Huron in Ontario.
- In July 2007, the Ontario Municipal Board and the Ontario Ministry of the Environment ruled in favor of the construction of Enbridge's Ontario Wind Project.
- Construction has commenced with access roads, turbine foundations, electrical sub-station and utility transmission lines.
- Enbridge has entered into a 20-year electricity purchase agreement with the Ontario Power Authority for all the power produced by the project.
- The project is expected to begin producing electricity during the latter half of 2008.
Commercially Secured Projects Not Yet Under Construction
The following projects have been commercially secured, but currently await construction, pending regulatory approval and/or planning pre-work.
Alberta Clipper Project
- The Alberta Clipper Project involves the construction of a new 36-inch diameter, 1,607-kilometer (1,000-mile) crude oil pipeline from Hardisty to Superior generally within or alongside Enbridge's existing right-of-way.
- The project will have an initial capacity of 450,000 bpd, is expandable to 800,000 bpd and will form part of the existing Enbridge System in Canada and the EEP Lakehead System in the United States.
- The Alberta Clipper Project will interconnect with the existing mainline system in Superior where it will provide access to Enbridge's full range of delivery points and tankage options, including Chicago, Toledo, Sarnia, Patoka, Wood River and Cushing.
- The Canadian segment of the line is expected to cost $2.0 billion (2007 dollars, excluding AFUDC).
- The U.S. segment, to be undertaken by EEP, is expected to cost US$1.0 billion (2007 dollars, excluding capitalized interest).
- In the fourth quarter of 2007, the NEB concluded hearings into the Company's application to construct the new pipeline, which included a commercial settlement which sets out the tolling principles and risk and return parameters agreed to with shippers. Enbridge expects a decision in the first quarter of 2008.
- Enbridge's affiliate, EEP, plans to file its set of toll principles with the Federal Energy Regulatory Commission (FERC) for the United States portion of the Alberta Clipper project.
- Engineering, construction planning and procurement activities continue and, subject to regulatory approval, construction would begin in 2008 for an expected in-service date in mid-2010.
Line 4 Extension Project
- In the second quarter of 2007, Enbridge filed a regulatory application with the NEB for the construction and operation of the $0.3 billion Line 4 Extension project.
- NEB hearings into the application concluded in January 2008 and a decision is expected in the second quarter of 2008.
- Subject to regulatory approvals, the project, involving construction of 136 kilometers (85 miles) of 36-inch diameter pipe to connect three existing 48-inch loops on the mainline system between Edmonton and Hardisty, would begin construction in 2008 and is expected to be in service in early 2009.
- Procurement of long lead items and detailed engineering for the pipeline and stations is proceeding.
Southern Access Extension Project
- The Southern Access Extension Project involves the construction of a new 36-inch diameter, 400,000 bpd pipeline extending the mainline from Flanagan to Patoka, Illinois at a cost of approximately US$0.5 billion to Enbridge.
- A revised tolling methodology application for the Southern Access Extension Project was filed with the FERC in October 2007.
- Subject to regulatory approval, construction would begin in 2008 with an estimated in-service date of 2009.
Spearhead Pipeline Expansion
- This expansion, to be effected through additional pumping stations, will increase capacity from Chicago, Illinois to Cushing, Oklahoma by 65,000 bpd to 190,000 bpd, at an expected cost of US$0.1 billion.
- The Company successfully completed the Spearhead Pipeline Expansion Open Season in the second quarter of 2007 and received FERC approval of its toll filing in December 2007.
- Preliminary engineering design has been completed and construction is scheduled to commence in early 2008.
- The project is expected to be completed in early 2009. M
Fort Hills Pipeline System
- The preliminary plan for Phase 1 of the Fort Hills Pipeline System includes a diluted bitumen pipeline from the mine site north of Fort McMurray to the upgrader site northeast of Edmonton with a capacity of 250,000 bpd, and a parallel 70,000 bpd diluent return pipeline.
- The system will consist of terminaling facilities at the mine site and the upgrader, and ancillary pipelines between the upgrader and the Edmonton pipeline hub.
The estimated cost of the initial pipeline system and related facilities is approximately $2.0 billion, subject to finalization of scope and estimate refinement, with planned in-service dates in mid-2011.
- Construction of the Fort Hills Project including the associated pipeline facilities are subject to final approvals by the Fort Hills' partners and various regulatory approvals and permits.
Projects Under Development
The following projects are in the commercial stage of development and the Company is in active discussions with potential customers.
Texas Access Pipeline
- The 768-mile (1,236-kilometer), 30-inch diameter Texas Access Pipeline would extend from Patoka, Illinois southward to Nederland, Texas and transport crude oil sourced from the Canadian oil sands region in Alberta and from the upper U.S Midwest to the Texas Gulf Coast.
- Also proposed is an 88-mile (142-kilometer), 24-inch pipeline to transport crude oil onward from Nederland to a delivery point in the Houston, Texas area.
- Enbridge and ExxonMobil Pipeline Company, partners in the project, are conducting a Solicitation for Binding Shipper Commitment (Open Season) to determine shipper interest in executing binding commitments to transport specified volumes of crude oil on the new pipeline. The results will guide and determine the further development of the proposed joint venture pipeline project.
- Assuming shipper support and receipt of necessary regulatory approvals, the pipeline is expected to be completed in 2011.
- The Gateway Project includes both a condensate import pipeline, from Kitimat, British Columbia to the Edmonton area and a petroleum export pipeline, from the Edmonton area to Kitimat.
- The condensate line is expected to have a 20-inch diameter and an initial capacity of 193,000 bpd.
- The petroleum export line is expected to have a 36-inch diameter and an initial capacity of 525,000 bpd.
- Capital cost estimates will be completed once commercial terms are finalized.
- Enbridge has secured third party funding support to advance the regulatory process.
- Subject to commercial support, regulatory and other approvals, the Company estimates the Gateway in-service date will be in the 2012 to 2014 timeframe.